News

In December 2017 the BCBS made their final decision on what they call the “Finalisation of Basel III” and what the industry has called “Basel IV”. The reforms tighten the rules, aiming to reduce variation in RWAs across banks and are aimed to be in force from 2022, although they do require governments (EU, US etc.) to write them into their own laws, which may see further changes made.

The package of changes includes:

More risk sensitive Standardised Approach for credit risk

Restrict full internal modelling (AIRB) for some portfolios with very low default data

AMA removed for Operational risk, leaving a single standardised approach

72.5% floor on internal model approaches vs standardised (note that this floor starts at 50% in 2022 and rises each year to 72.5% in 2027).

We summarise the effect on Bank loan portfolios as follows (for further details see BCBS summary):

This outcome allows for continuation of Advanced IRB modelling on most loan portfolios and continues the potential incentive, although limiting this to 27.5%. The outcome is better than initial proposals, thanks in part to analytics on GCD data supplied to support analysis by industry associations, including IIF and AFME. The debate is not closed on either sovereigns or specialised lending, so it is likely that GCD will be asked for more analytics in this area.

Conclusion:

The continuation of the full AIRB modelling of PD, EAD and LGD for mid corps, SME and Specialized Lending plus the continuance of regulatory PD modelling for banks and even the largest corporates will lead to a further demand for high quality data from GCD both for modelling and for benchmarking purposes.

Regulators have made clear on many occasions in the recent past that benchmarking remains a key element of the validation process, even in portfolios where the LGD parameter is fixed. Harmonization of national regulations, e.g. by the EBA and the SSM, supports the future of data pooling. On top of that, the need for internal modelling for pricing and Economic Capital remains strong and even increased with Credit Loss Provisioning (IFRS9). GCD’s growth in terms of coverage and depth of data will continue and we will deliver new ways of sharing data, methods and analytics, by banks for banks.

HSBC is one of the world's largest banks by loan volume and certainly has a global coverage in its portfolios. After careful due diligence and evaluation of benefits, HSBC Group has decided to join GCD and has been accepted by the Board for membership.

As for most members the key benefits for HSBC will come in the pooling of low default data as well as the alignment to best practice by collecting historical default information in a structured way, with GCD's data quality stamp.

Does loss given default (LGD) depend on the economic cycle and if so how can it be measured? This question still concerns risk modellers and regulators as part of their comprehensive risk assessment. In 2013 GCD published a first downturn LGD study based on the GCD large-scale LGD database. This report provides an update of the analyses presented back then on a now significantly enlarged data set provided by over 50 member banks and covering over 15 years of default history.

Banks around the world are spending huge amounts of money and time on developing their credit loss provisioning models for compliance with IFRS9 and CECL accounting rules. In simple terms, banks need to take credit provisions now against unknown future credit losses. The only sensible way of doing this is by looking at historical default, loss and recovery data.

GCD member banks have been discussing methods, data and scenarios for the last 2 years so that they can be ready to implement models in time for the 2018 deadline. GCD has already upgraded its PD data pooling platform to give members detailed historical data on risk grade migrations and multi year default rates, in addition to the PD and default data collected over many years.

GCD was called to make a presentation this week to the Basel Committee's expected loss task force on expected loss provisioning this week. GCD members have access to this presentation and will receive feedback on the meeting from our IFRS9 executive Daniela Thakkar.

Global Credit Data is searching for a full time Executive Director, based in Europe, who will take overall leadership of our management and activities. The existing Executive Director, Philip Winckle, is retiring in 2018 and the GCD Board is looking for an experienced, qualified and enthusiastic person to meet the changing and growing needs of our members in the financial community.

The role is described in detail in this document, together with contact details for those interested in applying.

Our members around the world are currently busy with finalizing their IFRS 9 impairment models. GCD is following its members’ wishes and will run a detailed IFRS 9 benchmarking study based on a hypothetical portfolio in July / August 2017. The study is also open to non-members. Contact us for more information.

Following our success with collecting PD and LGD estimates for names counterparties in the past, GCD has spent the last months investing in a full enhanced data collection process called GCD Benchmarking platform.

Member banks are able to directly benchmark their estimated PD, LGD and EaD parameters for named counterparties and specific clusters with peers.

The first submission cycle of the new GCD Benchmarking platform has now kicked off and will run till Mid June 2017. Contact us for more information.

SEK is based in Stockholm and our 9th member in the Nordic Area. AIB is based in Dublin and is one of the big four Irish Banks by market capitalisation. This brings our membership to 54 banks globally.

This study provides a theoretical and empirical analysis of five alternative discount rate concepts for computing LGDs using GCD Data. Appropriate discount rates are based on a combination of the risk free rate and risk premium for systematic risk at the time of default. Approaches may be separated into contract specific, comparable and equilibrium approaches. Advantages and shortcomings are discussed in the paper. The working group was chaired by Stephan Jortzik of ANZ and assisted by Harald Scheule, Associate Professor of Finance at the University of Technology, Sydney.

GCD's First Canadian Conference in Toronto was a great success with over 80 attendees from Canada, US and Europe. Given the current focus of banks, it was no surprise that the wish of the members was to focus on IFRS 9 / CECL and how GCD data can be used for that.

Thanks to our host Bank of Nova Scotia, all the attendees and presenters for participating!

GCD held its latest General Meeting on 2 December. 2016 After 8 years on the Board and 4.5 as chairman, Richard Crecel of Société Générale, stepped down. Board members pointed to Richard’s record of growth in number of members and diversity of activities. Theo van Drunen, until now the Treasurer, steps into the Chairman’s seat and has promised continued growth, with focus on member’s needs.

At the same meeting, Simon Ross-Hansen was re-elected and Sanjay Gupta of PNC joined the Board.

GCD is proud to welcome Export Development Canada as a member. EDC becomes our seventh Canadian member and our first export credit agency member. To qualify for and benefit from GCD membership, financial institutions need to be active in the corporate or specialised lending financing market, which EDC certainly is.

Due to expanding membership and activities, GCD is looking to employ a full time executive, based in the Netherlands, who will support our members in the data input, audit, output and analytics areas. The role is described in the attached document, together with contact details for those interested in applying.

Bank of Montreal's membership means that the cream of the Canadian banking industry are now members of GCD. Members receive detailed data for LGD/EAD and PD model support which is coded by country, so the addition of a sixth Canadian bank means a richer data return of Canadian, North American and global data.

With more than 100 people attending, Global Credit Data's third North American conference has been GCD's largest conference ever.

As usual the conference was a mix of presentations and discussions around the LGD, EAD and PD databases as well as credit risk modelling and measurement methodology discussions. If you are interesting in the content, please have a look at our Newsletter of April 2016. You can download it from our website now.

GCD's membership has now reached 50, with new members CIBC and Raffeisen Bank International joining in March 2016. GCD 's membership is more geographically representative of the global banking market, with 15 members in North America.

GCD announces the appointment of two executives to support our members globally.

Hale Tatar, based in Toronto Canada, will support our North American members from within their time zone, while Rob Korako, based in Netherlands, will support members with analytics and tool development globally.

Due to expansion in Global Credit Data's membership and activities we are now seeking to fill two full time positions both supporting and working with members in both data and other activities.

North American Member Support and Operations Executive

- based in Canada, with good travel access to all of North America, this person will be part of the global Data Operations team and also provide membership support to our US and Canadian members. Read about and apply for the position here

Methodology and Membership Executive

- based in Europe, with good travel access globally, this person will be part of the Global Membership support team working closely with member banks in Europe and globally. They will also be involved in working groups, credit data analytics and marketing. Read about and apply for the position here

With the Van Nelle Fabriek, an old coffee and tobacco factory repurposed to a conference facility, we had this time a very special location with a great industrial look. More than 80 risk professionals came together in Rotterdam to discuss the current developments around credit risk modelling. As usual, we had a well-balanced programme of plenary sessions, the highly appreciated member presentations , working group break-outs and modeller's club sessions. We also had included this time a special on current regulatory initiatives - with speakers from the IIF, the AFME and the Basel Committee’s RMG group. The General Meeting closed another successful year of expansion both in Europe and in North America and set the ground for further innovation coming in 2016.

In November 2015,UniCredit Group joined GCD as a new member. The Italian global banking and financial services company is based in the north of Italy in Milano. Its strategic position in Western and Eastern Europe gives the group one of the region's highest market shares.

With Unicredit Group we have now another "globally systemically important financial institution" (G-SIFI) contributing to our datapools in the future and we have reached a milestone in enlarging our geographical footprint in the whole of Europe.

GCD is becoming truly global with our latest new member. Bank of Nova Scotia (trading name Scotiabank) is Canada’s third largest bank by deposits and market cap and number 41 in world bank rankings. Scotiabank is based in Toronto, Ontario and has billed itself as "Canada's most international bank" due to its acquisitions primarily in Latin America and the Caribbean, and also in Europe and India. With Scotiabank joining, now more than 25% of our members are North America based.

With three new executives having joined in the last months, Global Credit Data has now six full-time professionals worldwide to support its member banks.

Originally “just” a data pooling organization, member banks' needs for discussing best practice in data handling, modelling and risk measurement has increased over the years. This is reflected in our high number of working groups which allow for intensive collaboration across banks and regions. Facilitated by GCD executives, the credit risk practitioners of our member banks are encouraged to zoom into one topic, to share best practices and to challenge each other.

The second half of 2015 has again great new initiatives ahead.

We have set up a new ‘IFRS 9 impairment models’ working group where member banks are welcome to share their answers to the methodological challenges of the new standard.

Next to that we plan to implement and support first users with a new web-based analytical tool so that information can be retrieved quicker and more intuitively from our data base.

A more solid data pooling tool for default data is to be built and rolled out to our member banks.

And we have begun - under the strict supervision of our members banks – to answer analytical requests on LGD data raised by regulators regarding the future of the IRB approach.

A lot to do, while we continue to ensure the same high standard on data quality and support for the upcoming H2 2015 data submission. Global Credit Data is ready!

Global Credit Data's General Meeting held in Vienna on 15 and 16 June was our largest ever, with 85 persons attending over 2 days. The event was hosted by Unicredit Bank Austria at their new conference centre in the city. Members and guests enjoyed 2 days of presentations and workshops with topics ranging from regulatory IRB changes to stress testing to IFRS9 modelling.

Global Credit Data members have completed the half yearly process of gathering, cleaning and inputting data into the defaulted loan database, for use in EAD and LGD historical calculations and as a source of data for modelling. Despite the benign default environment, the increasing number of lenders has raised the total loan count to over 120,000, a 6% rise in the half year.

It is pleasing to note that the low default asset class of "banks and financial intermediaries" is increasing in numbers to the point where it now has over 1,400 loans, while Real Estate Finance cases, especially from the USA, are also growing rapidly as new members join there.

Members receive the detailed data set in return, for the asset classes and years they submit data. With over 50 banks represented in the data set, the average bank is receiving 50 times as much data as they submit.

In April 2014 Global Credit Data welcomed three new members from North America:

Bank of America

Comerica Bank

Northern Trust

This brings the number of North American members to 12 and global membership to 47.

Each member brings a degree of specialty knowledge as well as more default data. Bank of America sits alongside existing US members Citibank and JP Morgan as one of the giants of US and International banking. Comerica is a regional powerhouse from Michigan to Texas and Northern Trust is internationally known for its wealth management and custody services.

Global Credit Data's second annual North American conference will be held at JPMorgan's downtown premises in New York City on 13 and 14 April 2015.

As usual the conference will be a mix of presentations and discussions around the LGD, EAD and PD databases as well as credit risk modelling and measurement methodology discussions. The conference is open to members and prospective members.

Contact steve.bennett globalcreditdata.org for more information or enquiries.

As from 1 March 2015 the non-profit consortium of financial institutions which have been collecting and sharing credit and default data since 2004 will change its name to “the Global Credit Data Consortium”, or Global Credit Data in normal usage.

Started in 2004 as the “Pan European Credit Data Consortium”, a group of mainly European banks decided to pool their default and loss experience in wholesale credit, aiming to improve their long term risk measurement and support their internal credit risk models. In 2008 the group had grown to over 20 banks and incorporated as a dutch registered association, with the name PECDC.

The association has now grown to 44 members and has collected and shared between members over 100,000 defaulted loan cases across all of the major asset classes. With half of the data and membership now outside Europe, in December 2014 members decided to change the name to reflect this, hence the Global Credit Data Consortium.

The association’s motto is “by banks for banks” reflecting the non-profit cooperative nature of the venture and the compatibility of the data between members. Global Credit Data’s chairman, Richard Crecel of Société Générale, puts it this way: “Global Credit Data has already collected the largest body of credit data in the scarce area of low default portfolios. Global expansion and further analytics and benchmarking will help banks to better understand their risk and capitalise their banks to take account of it”

Global Credit Data is open for membership to any financial institution which is governed by Basel rules of credit risk measurement and the data is available on a give-to-get basis. Members use the data for model building, benchmarking, calibration, validation, stress testing and internal capital assessment.

For more details contact the Executive Director: philip.winckle globalcreditdata.org

On 12 January the 4 largest Australian banks and guests met at Commonwealth Bank's Headquarters in Sydney for the first Australian Global Credit Data meeting.

As all banks were using the same data definitions in their Global Credit Data submissions it was easy to discuss best practices in LGD and PD modelling as well as special issues for Australia. This promises to be an annual event.